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UNITED STATES SECURITIES AND EXCHANGE COMMISSION  Washington, D.C. 20549 ______________________ Form 10-Q




x
            
            Quarterly report pursuant to
      Section 13 or 15(d) of the Securities Exchange Act of 1934For the quarterly
      period ended January 31, 2010ORo
            
            Transition report pursuant to
      Section 13 or 15(d) of the Securities Exchange Act of
  1934




Commission File Number:
001-11807______________________ UNIFY CORPORATION  (Exact name of registrant as
specified in its charter)




Delaware
            94-2710559(State or other jurisdiction
of
            (I.R.S. Employer
  Identificationincorporation or organization)
            Number)


1420 Rocky Ridge Drive, Suite 380 Roseville, California 95661 (Address of principal
executive offices)




Telephone: (916) 218-4700 (Registrant’s
telephone number, including area code)




Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.




YES x NO o




Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act.




Large accelerated filer o
            Accelerated filer o
            Non-accelerated filer o
            Smaller reporting company x(Do not check if a smaller reporting
      company)




Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act),




YESoNOx




Indicate the number of
shares outstanding of each of the issuer’s classes of common stock, as of the
latest practicable date: 10,122,708 shares of common stock, $0.001 par value, as
of January 31, 2010.




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UNIFY CORPORATION FORM
10-Q




INDEX




PART I.
            
            FINANCIAL INFORMATION
            3Item 1.
            
            Financial Statements
            3Unaudited Condensed Consolidated Balance
      Sheets as of January 31, 2010 and
            3April 30, 2009Unaudited Condensed Consolidated
      Statements of Operations for the three and nine
            4months ended January 31, 2010 and
      2009Unaudited Condensed Consolidated
      Statements of Cash Flows for the nine months
            5ended January 31, 2010 and
      2009Notes to Unaudited Condensed
      Consolidated Financial Statements
            6Item 2.
            
            Management’s Discussion and Analysis of
      Financial Condition and Results of Operations
            17Item 3.
            
            Quantitative and Qualitative Disclosures
      about Market Risk
            24Item 4.
            
            Controls and Procedures
            24PART II.
            
            OTHER INFORMATION
            25Item 1.
            
            Legal Proceedings
            25Item 6.
            
            Exhibits
            26SIGNATURE
            27CERTIFICATIONS


2




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PART I. FINANCIAL
INFORMATION




Item 1. Financial
Statements




UNIFY CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS(In
thousands)




January 31,
            
            April 30,2010
            
            2009ASSETSCurrent assets:Cash and cash equivalents
            
            $
            2,316
            
            
            $
            6,147Accounts receivable,
    net
            
            
            8,668
            
            
            
            4,501Prepaid expenses and other current assets
            
            
            1,297
            
            
            
            717Total current assets
            
            
            12,281
            
            
            
            11,365Property and equipment, net
            
            
            400
            
            
            
            472Goodwill
            
            
            16,152
            
            
            
            6,425Intangibles, net
            
            
            9,736
            
            
            
            2,720Other assets, net
            
            
            296
            
            
            
            99Total assets
            
            $
            38,865
            
            
            $
            21,081LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent liabilities:Accounts payable
            
            $
            738
            
            
            $
            685Current portion of long term
      debt
            
            
            1,854
            
            
            
            1,663Accrued compensation and related expenses
            
            
            1,647
            
            
            
            1,178Other accrued
      liabilities
            
            
            4,407
            
            
            
            905Deferred revenue
            
            
            11,958
            
            
            
            5,617Total current
      liabilities
            
            
            20,604
            
            
            
            10,048Long term debt, net
            
            
            252
            
            
            
            837Other long term liabilities
            
            
            1,436
            
            
            
            893Commitments and contingencies
            
            
            —
            
            
            
            —Stockholders’ equity:Common stock
            
            
            10
            
            
            
            7Additional paid-in capital
            
            
            79,418
            
            
            
            69,941Accumulated other
      comprehensive income (loss)
            
            
            245
            
            
            
            (113
            )Accumulated deficit
            
            
            (63,100
            )
            
            
            (60,532
            )Total stockholders’
      equity
            
            
            16,573
            
            
            
            9,303Total liabilities and stockholders’ equity
            
            $
            38,865
            
            
            $
            21,081


See accompanying notes
to condensed consolidated financial statements.




3




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UNIFY CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In
thousands, except per share data)




Three Months Ended
            
            Nine Months EndedJanuary 31,
            
            January 31,2010
            
            2009
            
            2010
            
            2009Revenues:Software licenses
            
            $
            3,354
            
            
            $
            1,737
            
            
            $
            6,169
            
            
            $
            5,286Services
            
            
            4,228
            
            
            
            2,753
            
            
            
            11,075
            
            
            
            8,869Migration solutions
            
            
            1,040
            
            
            
            718
            
            
            
            2,976
            
            
            
            1,881Total revenues
            
            
            8,622
            
            
            
            5,208
            
            
            
            20,220
            
            
            
            16,036Cost of Revenues:Software licenses
            
            
            140
            
            
            
            33
            
            
            
            229
            
            
            
            172Services
            
            
            1,020
            
            
            
            239
            
            
            
            2,212
            
            
            
            787Migration solutions
            
            
            625
            
            
            
            315
            
            
            
            1,414
            
            
            
            833Total cost of revenues
            
            
            1,785
            
            
            
            587
            
            
            
            3,855
            
            
            
            1,792Gross profit
            
            
            6,837
            
            
            
            4,621
            
            
            
            16,365
            
            
            
            14,244Operating Expenses:Product development
            
            
            1,749
            
            
            
            631
            
            
            
            4,901
            
            
            
            2,062Selling, general and administrative
            
            
            3,878
            
            
            
            2,712
            
            
            
            13,822
            
            
            
            9,434Total operating expenses
            
            
            5,627
            
            
            
            3,343
            
            
            
            18,723
            
            
            
            11,496Income (loss) from operations
            
            
            1,210
            
            
            
            1,278
            
            
            
            (2,358
            )
            
            
            2,748Other income (expense), net
            
            
            (92
            )
            
            
            (40
            )
            
            
            (87
            )
            
            
            (206
            )Income (loss) before income taxes
            
            
            1,118
            
            
            
            1,238
            
            
            
            (2,445
            )
            
            
            2,542Provision for income taxes
            
            
            56
            
            
            
            153
            
            
            
            122
            
            
            
            341Net
      income (loss)
            
            $
            1,062
            
            
            $
            1,085
            
            
            $
            (2,567
            )
            
            $
            2,201Net income (loss) per share:Basic
            
            $
            0.10
            
            
            $
            0.16
            
            
            $
            (0.27
            )
            
            $
            0.32Dilutive
            
            $
            0.10
            
            
            $
            0.15
            
            
            $
            (0.27
            )
            
            $
            0.29Shares used in computing net income
      (loss) per share:Basic
            
            
            10,123
            
            
            
            6,981
            
            
            
            9,536
            
            
            
            6,981Dilutive
            
            
            10,601
            
            
            
            7,334
            
            
            
            9,536
            
            
            
            7,592


See accompanying notes
to condensed consolidated financial statements.




4




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UNIFY CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In
thousands)




Nine Months Ended January
      31,2010
            
            2009Cash flows from operating
      activities:Net income (loss)
            
            $
            (2,567
            )
            
            $
            2,201Reconciliation of net income (loss) to net cash provided by (used in)
      operatingactivities:Depreciation
            
            
            176
            
            
            
            135Loss on disposal of equipment
            
            
            -
            
            
            
            2Amortization of intangible assets
            
            
            1,861
            
            
            
            539Amortization of discount on notes payable
            
            
            25
            
            
            
            35Stock based compensation expense
            
            
            471
            
            
            
            448Changes in operating assets and liabilities:Accounts
      receivable
            
            
            (3,457
            )
            
            
            (121
            )Prepaid expenses and other current assets
            
            
            (122
            )
            
            
            (144
            )Other long term assets
            
            
            20
            
            
            
            -Accounts payable
            
            
            (1,337
            )
            
            
            (202
            )Accrued compensation and related expenses
            
            
            (26
            )
            
            
            (543
            )Other accrued liabilities
            
            
            (2,161
            )
            
            
            186Accrued acquisition costs
            
            
            (46
            )
            
            
            -Deferred revenue
            
            
            4,178
            
            
            
            (566
            )Other long term liabilities
            
            
            (216
            )
            
            
            23Net cash provided by (used in) operating
      activities
            
            
            (3,201
            )
            
            
            1,993Cash flows from investing
      activities:Acquisition, net of cash
      acquired
            
            
            37
            
            
            
            (491
            )Purchases of property and equipment
            
            
            (34
            )
            
            
            (165
            )Payments on acquisition
      obligations
            
            
            -
            
            
            
            (110
            )Net cash provided by (used in) investing
      activities
            
            
            3
            
            
            
            (766
            )Cash flows from financing
      activities:Proceeds from issuance of
      common stock
            
            
            9
            
            
            
            1Payments on revolver
            
            
            -
            
            
            
            (1,000
            )Borrowings on revolving line
      of credit
            
            
            350
            
            
            
            1,000Principal payments under debt obligations
            
            
            (1,175
            )
            
            
            (22
            )Net cash used in financing activities
            
            
            (816
            )
            
            
            (21
            )Effect of exchange rate changes on
      cash
            
            
            183
            
            
            
            (396
            )Net increase (decrease) in cash and cash equivalents
            
            
            (3,831
            )
            
            
            810Cash and cash equivalents, beginning of
      period
            
            
            6,147
            
            
            
            2,692Cash and cash equivalents, end of period
            
            $
            2,316
            
            
            $
            3,502Supplemental cash flow
      information:Cash paid during the period
      for:Interest
            
            $
            93
            
            
            $
            66Taxes
            
            $
            22
            
            
            $
            130Supplemental non-cash financing
      activities:Common stock issued in
      conjunction with acquisition
            
            $
            3
            
            
            $
            52   See accompanying notes
to condensed consolidated financial statements.
  5
     UNIFY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  January 31, 2010
  1. Basis of Presentation
  The condensed
consolidated financial statements have been prepared by Unify Corporation (the
“Company”, “we”, “us”, “our”) pursuant to the rules and regulations of the
Securities and Exchange Commission (“SEC”). The accompanying condensed
consolidated financial statements include our accounts and those of our
subsidiaries that we control due to ownership of a controlling interest.
Intercompany transactions and balances have been eliminated. While the interim
financial information contained in this filing is unaudited, such financial
statements, in the opinion of management, reflect all adjustments (consisting
only of normal recurring adjustments) which the Company considers necessary for
a fair presentation. The results for interim periods are not necessarily
indicative of the results to be expected for the entire fiscal year. These
financial statements should be read in conjunction with the Consolidated
Financial Statements and Notes thereto, together with Management’s Discussion
and Analysis of Financial Condition and Results of Operations, which are
included in the Company’s Annual Report on Form 10-K for the fiscal year ended
April 30, 2009, as filed with the SEC.
  Revenue Recognition
  The Company generates
revenue from software license sales and related services, including maintenance
and support, and consulting services. Additionally, the Company generates
revenue from its migration solutions products. The Company licenses its products
to end-user customers, independent software vendors (“ISVs”), international
distributors and value-added resellers (“VARs”). The Company’s products are
generally sold with a perpetual license. The Company’s contracts with ISVs, VARs
and international distributors do not include special considerations such as
rights of return, stock rotation, price protection or special acceptance. The
Company exercises judgment in connection with the determination of the amount of
revenue to be recognized in each accounting period. The nature of each
contractual arrangement determines how revenues and related costs are
recognized.
  For software license
arrangements that do not require significant modification or customization of
the underlying software, revenue is recognized when the software product or
service has been shipped or electronically delivered, the license fees are fixed
and determinable, uncertainties regarding customer acceptance are resolved,
collectability is probable and persuasive evidence of an arrangement
exists.
  For fixed price
arrangements that require significant modification or customization of software,
the Company uses the percentage-of-completion method for revenue recognition.
Under the percentage-of-completion method, progress towards completion is
measured by labor hours.
  The Company considers a
signed non-cancelable license agreement, a customer purchase order, a customer
purchase requisition, or a sales quotation signed by an authorized purchaser of
the customer to be persuasive evidence that an arrangement exists such that
revenue can be recognized.
  The Company’s customer
contracts may include multi-element arrangements that include a delivered
element (a software license) and undelivered elements (such as maintenance and
support and/or consulting). The value allocated to the undelivered elements is
unbundled from the delivered element based on vendor-specific objective evidence
(VSOE) of the fair value of the maintenance and support and/or consulting,
regardless of any separate prices stated within the contract. VSOE of fair value
is defined as: (i) the price charged when the same element is sold separately,
or (ii) if the element has not yet been sold separately, the price for the
element established by management having the relevant authority when it is
probable that the price will not change before the introduction of the element
into the marketplace. The Company then allocates the remaining balance to the
delivered element (a software license) regardless of any separate prices stated
within the contract using the residual method as the fair value of all
undelivered elements is determinable.
  We defer revenue for any
undelivered elements, and recognize revenue for delivered elements only when the
fair values of undelivered elements are known, uncertainties regarding customer
acceptance are resolved, and there are no customer-negotiated refund or return
rights affecting the revenue recognized for delivered elements. If we cannot
objectively determine the fair value of any undelivered element included in
bundled software and service arrangements, we defer revenue until all elements
are delivered and services have been performed, or until fair value can
objectively be determined for any remaining undelivered elements.
  An assessment of the
ability of the Company’s customers to pay is another consideration that affects
revenue recognition. In some cases, the Company sells to undercapitalized
customers. In those circumstances, revenue recognition is deferred until cash is
received, the customer has established a history of making timely payments or
the customer’s financial condition has improved. Furthermore, once revenue has
been recognized, the Company evaluates the related accounts receivable balance
at each period end for amounts that we believe may no longer be collectible.
This evaluation is largely done based on a review of the financial condition via
credit agencies and historical experience with the customer. Any deterioration
in credit worthiness of a customer may impact the Company’s evaluation of
accounts receivable in any given period.
  6
     Revenue from support and
maintenance activities, which consist of fees for ongoing support and
unspecified product updates, are recognized ratably over the term of the
maintenance contract, typically one year, and the associated costs are expensed
as incurred. Consulting service arrangements are performed on a “best efforts”
basis and may be billed under time-and-materials arrangements or fixed price
arrangements. Revenues and expenses relating to providing consulting services
are recognized as the services are performed.
  Recently Issued Accounting Standards
  In June 2009, the
Financial Accounting Standards Board (“FASB”) issued authoritative guidance that
establishes the Accounting Standards Codification (“Codification” or "ASC") as
the single source of authoritative U.S. generally accepted accounting principles
(“GAAP”) recognized by the FASB to be applied by non-governmental entities.
Rules and interpretive releases of the Securities and Exchange Commission
(“SEC”) under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. The Codification supercedes all existing
non-SEC accounting literature not included in the Codification. The FASB will
not issue new standards in the form of Statements, FASB Staff Positions or
Emerging Issues Task Force Abstracts. Instead, it will issue Accounting
Standards Updates, which will serve to update the Codification, provide
background information about the guidance and provide the basis for conclusions
on the changes to the Codification. GAAP is not intended to be changed as a
result of the FASB’s Codification project, but it will change the way guidance
is organized and presented. As a result, these changes will have a significant
impact on how companies reference GAAP in their financial statements and in
their accounting policies for financial statements issued for interim and annual
periods ending after September 15, 2009. The Company has implemented the
Codification in this Quarterly Report by providing a plain English approach when
describing any new or updated authoritative guidance.
  In October 2009, the
FASB issued authoritative guidance on revenue arrangements with multiple
deliverables that are outside the scope of the software revenue recognition
guidance. Under the new guidance, when vendor specific objective evidence or
third party evidence for deliverables in an arrangement cannot be determined, a
best estimate of the selling price is required to separate deliverables and
allocate arrangement consideration using the relative selling price method. The
new guidance includes new disclosure requirements on how the application of the
relative selling price method affects the timing and amount of revenue
recognition. The new guidance will become effective for Unify beginning May 1,
2011, with earlier adoption permitted. The Company is currently assessing the
impact of the adoption of this guidance.
  2. Acquisitions
  Active Data Corporation
  On May 22, 2007, the
Company purchased privately held Active Data Corporation (“ADC”) for
approximately $420,000 plus earn-out payments of $97,000. ADC provided
application migration software that added Microsoft’s .NET functionality to
Unify’s Team Developer product and provided an additional application migration
solution for the Company. Pursuant to the terms of the purchase agreement, Unify
acquired all the outstanding stock of ADC. ADC did not represent the addition of
a significant subsidiary. The acquisition of ADC did not have a material impact
on the financials of Unify and the results of operations for ADC are included in
the Company’s results from the date of acquisition. The ADC purchase price was
allocated to tangible and intangible assets acquired and liabilities assumed
based on management’s determination of their estimated fair values. The excess
of the purchase price over the fair value of net assets acquired was allocated
to goodwill. The Company believes the fair values assigned to the assets
acquired and liabilities assumed were based on reasonable
assumptions.
  CipherSoft Inc.
  On January 30, 2009, the
Company purchased privately held CipherSoft Inc. (“CipherSoft”), headquartered
in Calgary, Canada, for approximately $628,000 plus the assumption of debt of
$1,032,000 and future potential royalty payments to be paid over a four year
period following the acquisition. The royalty payments are based on a percentage
of revenue and will increase goodwill upon being earned. As of January 31, 2010,
royalty payments earned totaled $118,000. CipherSoft is a leading Oracle partner
for modernization and migration of Oracle applications and provides an
additional application migration solution for the Company. Pursuant to the terms
of the purchase agreement, Unify acquired all the outstanding stock of
CipherSoft. CipherSoft did not represent the addition of a significant
subsidiary.
  7
     The CipherSoft purchase
price was allocated to tangible and intangible assets acquired and liabilities
assumed based on management’s determination of their estimated fair values at
the acquisition date, January 30, 2009. Intangible assets include technologies
of $1,060,000, non-competition agreements of $85,000, consulting agreements of
$110,000 and trade names of
$80,000. The excess of the purchase price over the fair value of net assets
acquired was allocated to goodwill. The Company believes the fair values
assigned to the assets acquired and liabilities assumed were based on reasonable
assumptions. The following table summarizes the fair values of net assets
acquired and represents the opening balance sheet for CipherSoft as of the
acquisition date, January 30, 2009 (in thousands):
  Current assets
              
              $
              236Long term assets
              
              
              22Goodwill
              
              
              780Intangibles
              
              
              1,335Total assets
              
              $
              2,373Current Liabilities
              
              $
              1,099Long term liabilities
              
              
              646Total liabilities assumed
              
              $
              1,745Total consideration
              
              $
              628
  AXS-One Inc.
  On June 30, 2009, the
Company acquired all of the issued and outstanding shares of common stock and
warrants of AXS-One. The common stock and warrants were converted into, in the
aggregate, 1,000,000 shares of Unify common stock. The outstanding convertible
notes of AXS-One with an aggregate outstanding principal and interest balance of
approximately $13 million were exchanged for 1,642,600 shares of Unify common
stock. The note holders may also be issued additional shares of Unify common
stock based on revenue generated from AXS-One’s products over 13 months after
the effective date of the merger.
  AXS-One is a leading
provider of integrated content archiving software solutions which enables
organizations to implement secure, scalable and enforceable policies that
address records management for corporate governance, legal discovery and
industry regulations. The acquisition of AXS-One advances the Company’s growth
strategy to acquire superior technology companies that can leverage its
technology strengths, extensive customer base and worldwide distribution channel
while enabling the combined company to meet a broader set of customers’ needs,
accelerate direct and channel sales, and achieve cost synergies.
  8
     The goodwill of $9.5
million arising from the acquisition consists of increased market presence and
opportunities, enhanced product mix and operating efficiencies expected from
combining the operations of Unify and AXS-One. All of the goodwill was assigned
to Unify’s Integrated Content Archiving Solutions segment. None of the goodwill
recognized is expected to be deductible for income tax purposes.
  The following table
summarizes the consideration paid for AXS-One and the amounts of the assets
acquired and liabilities assumed recognized at the acquisition date, June 30,
2009 (in thousands):
  ConsiderationEquity instruments (2,642,600 common shares of Unify)
              
              $
              8,853Contingent consideration
      arrangement
              
              
              2,732Fair value of total
      consideration
              
              $
              11,585Recognized amounts of identifiable
      assets acquired and liabilities assumedFinancial assets
              
              $
              117Accounts receivable
              
              
              591Other assets
              
              
              679Property, plant and equipment
              
              
              132Identifiable intangible assets
              
              
              8,685Financial liabilities
              
              
              (5,616
              )Deferred revenue
              
              
              (2,493
              )Total identifiable net assets
              
              $
              2,095Goodwill
              
              
              9,490$
              11,585Acquisition related costs(included in
      selling, general and administrative expense in Unify's statementof operations for the nine months ended
      January 31, 2010)
              
              $
              611
  The fair value of the
2,642,600 common shares issued as part of the consideration paid for AXS-One
($8,853,000) was determined on the basis of the closing market price of Unify’s
common shares on the acquisition date.
  The contingent
consideration arrangement requires Unify to issue to the former holders of
AXS-One convertible notes 0.35 shares of Unify common stock for every $1 of
AXS-One net license revenue over the first $2,000,000 for the 13 month period
following the acquisition date. After the holders of AXS-One convertible notes
have received in the aggregate 2,580,000 Unify shares (as adjusted to reflect
stock splits, stock dividends and reverse stock splits of Unify) under the
earn-out, the shares issued as the earn-out shall be distributed one-half to the
holders of AXS-One convertible notes and one-half to the former management
members until the management members have received 171,250 Unify shares under
the earn-out. Thereafter, any additional Unify shares issued as earn-out shall
be distributed solely to the holders of AXS-One convertible notes. There is no
limit to the total number of shares that can be earned. The estimated number of
shares that Unify will issue under the contingent consideration arrangement is
855,000. The fair value of the contingent consideration of $2.7 million is based
on management’s estimate of both expected net license revenue and share price.
The fair value of the contingent consideration is provisional pending the
receipt of a final valuation.
  Based on the receipt of
a preliminary valuation, acquisition date provisional values were adjusted to
decrease contingent consideration by $2,030,000, decrease identifiable
intangible assets by $1,325,000, increase deferred revenue by $423,000 and
decrease goodwill by $282,000. The fair values of the contingent consideration,
acquired identifiable intangible assets, deferred income tax liabilities and
deferred revenue remain provisional pending the receipt of a final valuation. Intangible assets include
technologies of $5.1 million, trademarks of $1.2 million, backlog of $0.1
million, and customer relationships of $2.3 million.
  9
     The amounts of AXS-One’s
revenue and earnings included in the Company’s consolidated statement of
operations for the nine months ended January 31, 2010, and the supplemental pro
forma revenue and earnings of the combined entity had the acquisition date been
May 1, 2009, or May 1, 2008, are:
  (in thousands, except per share
      amounts)
              
              Revenue
              
              Net
      loss
              
              Net loss per
      shareActual from July 1, 2009 to January 31,
      2010
              
              $
              6,038
              
              $
              (573
              )
              
              $
              (0.06
              )Supplemental pro forma from May 1, 2009 to January 31,
    2010
              
              $
              21,729
              
              $
              (3,157
              )
              
              $
              (0.32
              )Supplemental pro forma from May 1, 2008
      to January 31, 2009
              
              $
              25,565
              
              $
              (4,814
              )
              
              $
              (0.69
              )
  3. Stock Compensation
Information
  Compensation expense
includes the estimated fair value of equity awards vested during the reported
period. Expense for equity awards vested is determined based on the grant date
fair value previously calculated for pro forma disclosures. For the quarter
ended January 31, 2010, equity-based compensation expense from operations was
comprised of the following (in thousands):
  Three Months Ended
              
              Nine Months EndedJanuary 31,
              
              January 31,2010
              
              2009
              
              2010
              
              2009Cost of Sales
              
              $
              5
              
              $
              3
              
              $
              13
              
              $
              10Product Development
              
              
              31
              
              
              22
              
              
              90
              
              
              65Selling, General and
      Administrative
              
              
              112
              
              
              132
              
              
              368
              
              
              373Total Equity-Based Compensation
              
              $
              148
              
              $
              157
              
              $
              471
              
              $
              448
  The following table
shows remaining unrecognized compensation expense on a pre-tax basis related to
all types of non-vested equity awards outstanding as of January 31, 2010. This
table does not include an estimate for future grants that may be issued (amounts
in thousands).
  Fiscal Year Ending April
      30,
              
              AmountRemainder of 2010
              
              $
              1542011
              
              
              6062012
              
              
              5042013
              
              
              2022014
              
              
              10Total
              
              $
              1,476
  The cost above is
expected to be recognized over a weighted-average period of 1.34
years.
  The Company continues to
use the Black-Scholes option pricing model to estimate fair value of equity
awards, which requires the input of highly subjective assumptions, including the
expected stock price volatility. The Company’s calculations are made using the
Black-Scholes option pricing model, with the following weighted average
assumptions for the nine months ended January 31, 2010 and 2009, respectively:
expected option life, 12 to 18 months following vesting; stock volatility of 93%
and 95%; risk-free interest rates of 1.9% and 1.5% and no dividends during the
expected term. Not all stock options that have been granted will be exercised.
Accordingly, the Company’s calculation of equity-based compensation expense
includes an adjustment for the estimated number of options that will be
forfeited.
  Under the 2001 Stock
Option Plan (the “2001 Option Plan”), the Company may grant options to purchase
up to 2,000,000 shares of common stock to eligible employees, directors, and
consultants at prices not less than the fair market value at the date of grant
for incentive stock options and not less than 85% of the fair market value at
the date of grant for non-statutory stock options. Options granted under the
2001 Stock Option Plan generally vest over four years, are exercisable to the
extent vested, and expire 10 years from the date of grant. Under the 1991 Stock
Option Plan (the “1991 Option Plan”) which expired as of March 2001, the Company
was able to grant options to eligible employees, directors and consultants at
prices not less than the fair market value at the date of grant for incentive
stock options and not less than 85% of the fair market value at the date of
grant for non-statutory stock options. Options granted under the 1991 Option
Plan generally vest over four years, are exercisable to the extent vested, and
expire 10 years from the date of grant.
  10
     A summary of the
Company’s stock option activity for the nine months ended January 31, 2010 is as
follows:
  WeightedWeighted
              
              average remaining
              
              Aggregateaverage
              
              contractual
              
              intrinsicShares
              
              exercise price
              
              term (in years)
              
              value (1)Outstanding at April 30, 2009
              1,075,804
              
              
              $
              3.93
              
              7.22
              
              $
              496,992Granted
              655,300
              
              
              $
              2.82Exercised
              (5,911
              )
              
              $
              1.47Canceled or expired
              (89,675
              )
              
              $
              6.57Outstanding at January 31,
2010
              1,635,518
              
              
              $
              3.55
              
              7.29
              
              $
              781,275Exercisable at January 31,
2010
              781,437
              
              
              $
              3.17
              
              6.17
              
              $
              509,424
  (1)
              
              Aggregate intrinsic value is defined as the difference between the
      current market value and the exercise price and is estimated using the
      closing price of the Company’s common stock on the last trading day of the
      periods ended as of the dates indicated.
  Total intrinsic value of
awards exercised during the quarters ended January 31, 2010 and January 31, 2009
was $8,596 and $0, respectively. The total fair value of awards vested during
the quarters ended January 31, 2010 and January 31, 2009 was $162,357 and
$158,554, respectively.
  A summary of the
Company’s nonvested stock option activity for the period ended January 31, 2010
is as follows:
  Weightedaverage fairShares
              
              valueNonvested at April 30, 2009
              460,464
              
              
              $
              3.50Granted
              655,300
              
              
              $
              1.49Vested
              (208,469
              )
              
              $
              2.56Canceled or expired
              (53,214
              )
              
              $
              2.56Nonvested at January 31, 2010
              854,081
              
              
              $
              2.19
 11
     4.  Goodwill and Intangible Assets
  The following tables
present details of the Company’s goodwill and intangible assets as of January
31, 2010 and April 30, 2009 (in thousands).
  Gross
              
              
              
              
              
              Netcarrying
              
              Accumulated
              
              carrying
              
              EstimatedJanuary 31, 2010
              
              amount
              
              amortization
              
              amount
              
              useful lifeInfinite Lives:Goodwill
              
              $
              16,152
              
              $
              —
              
              
              $
              16,152
              
              —Finite Lives:Customer-related
              
              
              3,836
              
              
              (1,108
              )
              
              
              2,728
              
              4 to 10 yearsTechnology-based
              
              
              7,650
              
              
              (1,924
              )
              
              
              5,726
              
              3 to 6 yearsTrademarks
              
              
              1,500
              
              
              (378
              )
              
              
              1,122
              
              4 to 5 yearsTrade name
              
              
              192
              
              
              (131
              )
              
              
              61
              
              1 to 3 yearsBacklog
              
              
              90
              
              
              (90
              )
              
              
              -
              
              0.5 yearsNon-compete
              
              
              97
              
              
              (24
              )
              
              
              73
              
              3 to 5 yearsConsulting agreement
              
              
              126
              
              
              (100
              )
              
              
              26
              
              1 to 1.3 yearsTotal
              
              $
              29,643
              
              $
              (3,755
              )
              
              $
              25,888Gross
              
              
              
              
              
              Netcarrying
              
              Accumulated
              
              carrying
              
              EstimatedApril 30, 2009
              
              amount
              
              amortization
              
              amount
              
              useful lifeInfinite Lives:Goodwill
              
              $
              6,425
              
              $
              —
              
              
              $
              6,425
              
              —Finite Lives:Customer-related
              
              
              1,536
              
              
              (742
              )
              
              
              794
              
              4 to 5 yearsTechnology-based
              
              
              2,395
              
              
              (827
              )
              
              
              1,568
              
              3 to 4 yearsTrademarks
              
              
              300
              
              
              (181
              )
              
              
              119
              
              4 yearsTrade name
              
              
              180
              
              
              (107
              )
              
              
              73
              
              1 to 3 yearsNon-compete
              
              
              85
              
              
              (7
              )
              
              
              78
              
              3 to 3.3 yearsConsulting agreement
              
              
              110
              
              
              (22
              )
              
              
              88
              
              1 to 1.3 yearsTotal
              
              $
              11,031
              
              $
              (1,886
              )
              
              $
              9,145
 Acquired finite-lived
intangibles are generally amortized on a straight line basis over their
estimated useful life. The useful life of finite-lived intangibles is the period
over which the asset is expected to contribute directly or indirectly to future
cash flows of the Company. Intangible assets amortization expense for the nine
months ended January 31, 2010, was $1,860,843. Amortization expense for the nine
months ended January 31, 2009, was $539,000. The estimated future amortization
expense related to intangible assets as of January 31, 2010, is as follows (in
thousands):
  Fiscal Year Ending April
      30,
              
              AmountRemainder of 2010
              
              $
              6382011
              
              
              2,3662012
              
              
              1,8562013
              
              
              1,3302014
              
              
              1,3272015
              
              
              1,119Thereafter
              
              
              1,100Total
              
              $
              9,736
 Goodwill at January 31,
2010, represents the excess of purchase prices over the sum of the amounts
assigned to assets acquired less liabilities assumed. The Company believes these
acquisitions will produce the following results:
 Increased Market Presence and
  Opportunities:The addition of the acquired companies should increase
  the combined company’s market presence and opportunities for growth in sales
  and earnings. 12
     Enhanced
  Product Mix:The complementary nature
  of the Company’s products with its acquisitions should benefit current
  customers and provide the combined company with the ability to access new
  customers.
          Operating
  Efficiencies:The combination of the
  Company with its acquisitions provides the opportunity for potential economies
  of scale and cost savings.
 The Company believes these primary
factors support the amount of goodwill recognized as a result of the purchase
price for companies it has acquired. Goodwill is tested for impairment on an
annual basis as of April 30, and between annual tests if indicators of potential
impairment exist, using a fair-value-based approach.
  5. Credit Facility
  On November 20, 2006,
the Company entered into a revolving credit note agreement with ComVest Capital
LLC. Under the terms of the agreement the Company can borrow up to $2.5 million.
As of January 31, 2010, there was $350,000 outstanding on the revolver. The
amount that can be borrowed under the revolver is based on the amount of
eligible foreign and domestic accounts receivable outstanding. The revolver has
an expiration date of November 30, 2010, and the Company incurs interest expense
on funds borrowed at the prevailing prime rate plus 2.25% per annum (5.5% as of
January 31, 2010 and April 30, 2009).
  6. Long-Term Debt
  The Company’s debt
consists of the following at January 31, 2010 and April 30, 2009 (in thousands):
  January 31,
              
              April 30,2010
              
              2009Convertible notes payable to ComVest
      Capital LLC, interest rate of 5%, payable ininstallments through September 30, 2010.
      These notes include certain negativecovenants and the Company is in
      compliance with such covenants.
              $
              698
              
              
              $
              1,400Note Payable, interest rate of 5%,
      payable in installments through April 2011.
              
              742
              
              
              
              1,032Note Payable, interest rate of 5%,
      payable in installments through May 2011.
              
              250
              
              
              
              —ComVest Capital LLC credit facility,
      interest rate 5.5%, payable November 2010.
              
              350
              
              
              
              —Note Payable, payable in installments
      through December 2011.
              
              5
              
              
              
              —Capital leases payable, payable in
      monthly installments through September 2011.
              
              65
              
              
              
              972,110
              
              
              
              2,529Less discount on notes payable,
      net
              
              (4
              )
              
              
              (29
              )Less current portion
              
              (1,854
              )
              
              
              (1,663
              )Total long term debt, net
              $
              252
              
              
              $
              837
 7. Other Long-Term
Liabilities
  In France, the Company
is subject to mandatory employee severance costs associated with a statutory
government regulated plan covering all employees. The plan provides for one
month of severance for the first five years of service with an employer and one
fifth of one year of severance for every one year of service thereafter. In
order to receive their severance payment the employee generally may not retire
before age 65 and must be employed at the time of retirement. As of January 31,
2010 and April 30, 2009 the amount of severance is $87,000 and $81,000,
respectively. Also included in other long term liabilities as of January 31,
2010 and April 30, 2009 is $677,000 and $541,000, respectively, of deferred tax
liabilities and $232,000 and $271,000 of deferred rent related to the Roseville,
California office. Additionally, included in other long term liabilities as
January 31, 2010, is $441,000 related to the purchase accounting valuation for
the Rutherford, New Jersey office lease.
  13
     8. Maintenance Contracts
  The Company offers
maintenance contracts to its customers at the time they enter into a product
license agreement and renew those contracts at the customers’ option, generally
annually thereafter. These maintenance contracts are priced as a percentage of
the value of the related license agreement. The specific terms and conditions of
these initial maintenance contracts and subsequent renewals vary depending upon
the product licensed and the country in which the Company does business.
Generally, maintenance contracts provide the customer with unspecified product
maintenance updates and customer support services. Revenue from maintenance
contracts is initially deferred and then recognized ratably over the term of the
agreements.
  Changes in the Company’s
deferred maintenance revenue during the periods are as follows (in thousands):
  Three Months Ended
              
              
              Nine Months EndedJanuary 31,
              
              January 31,2010
              
              2009
              
              2010
              
              2009Deferred maintenance revenue beginning
      balance
              $
              8,323
              
              
              $
              4,813
              
              
              $
              5,473
              
              
              $
              6,130Deferred maintenance revenue recognized during period
              
              (3,826
              )
              
              
              (2,724
              )
              
              
              (9,968
              )
              
              
              (8,469
              )Deferred maintenance revenue of new
      maintenance contracts
              
              5,387
              
              
              
              3,784
              
              
              
              14,379
              
              
              
              8,212Deferred maintenance revenue ending balance
              $
              9,884
              
              
              $
              5,873
              
              
              $
              9,884
              
              
              $
              5,873
 9. Income Taxes
  The Company recognizes
the financial statement benefit of a tax position only after determining that
the relevant tax authority would more likely than not sustain the position
following an audit. For tax positions meeting the more-likely-than-not
threshold, the amount recognized in the financial statements is the largest
benefit that has a greater than 50 percent likelihood of being realized upon
ultimate settlement with the relevant tax authority.
  The Company is subject
to income taxes in the U.S. federal jurisdiction, and various states and foreign
jurisdictions. Tax regulations within each jurisdiction are subject to the
interpretation of the related tax laws and regulations and require significant
judgment to apply. In general, the Company is no longer subject to U.S. federal,
state and local, or non-U.S. income tax examinations by tax authorities for the
fiscal years before 2004. The Company does not believe there will be any
material changes in its unrecognized tax positions over the next 12 months.
Therefore, no reserves for uncertain income tax positions have been recorded.
  The Company’s policy is
to recognize interest and penalties accrued on any unrecognized tax benefits as
a component of income tax expense. As of January 31, 2010, the Company did not
have any accrued interest or penalties associated with any unrecognized tax
benefits, nor did the Company record any interest expense in the nine months
ended January 31, 2010.
  In September 2008, the
State of California suspended the ability to use net operating loss
carry-forwards to offset taxable income for a two year period.
  10. Comprehensive Income
(Loss)
  Comprehensive income
includes net income (loss) and net foreign currency translation adjustments. A
comprehensive gain (loss) on foreign currency translations for the three months
ended January 31, 2010 and 2009 was $139,000 and ($31,000), respectively. A
comprehensive gain (loss) on foreign currency translations for the nine months
ended January 31, 2010 and 2009 was $358,000 and ($225,000),
respectively.
  11. Reverse Stock Split
  On June 24, 2007, the
Company implemented a 1 for 5 reverse stock split. The reverse stock split had
been previously approved by the Company’s stockholders as part of the Company’s
March 29, 2007 Annual Meeting.
  14
     12. Stock Repurchase Plan
  On December 1, 2009, the
Company announced that its Board of Directors had approved a stock repurchase
program authorizing the repurchase of up to 300,000 shares of its common stock.
Under the program, shares may be repurchased from time to time in open market
transactions at prevailing market prices or in privately negotiated purchases.
The timing and actual number of shares purchased will depend on a variety of
factors, such as price, corporate and regulatory requirements, alternative
investment opportunities, and other market and economic conditions. Repurchases
under the program will be funded from available working capital. The program may
be commenced, suspended or terminated at any time, or from time-to-time at
management’s discretion without prior notice. No shares were repurchased during
the quarter ended January, 31, 2010.
  13. Income (Loss) Per Share
  Basic earnings (loss)
per share is computed by dividing net income (loss) by the weighted average
number of common shares outstanding during the reporting period. Diluted
earnings (loss) per share is computed similar to basic earnings (loss) per share
except that it reflects the potential dilution that could occur if dilutive
securities or other obligations to issue common stock were exercised or
converted into common stock. For the nine months ended January 31, 2010, because
of our reported net loss, potentially dilutive securities were excluded from the
per share computations due to their anti-dilutive effect.
  Three Months Ended
              
              Nine Months Ended(in thousands, except per share
      amounts)
              January 31,
              
              January 31,2010
              
              2009
              
              2010
              
              2009Net income (loss)
              $
              1,062
              
              $
              1,085
              
              $
              (2,567
              )
              
              $
              2,201Weighted average shares of common stock
      outstanding, basic
              
              10,123
              
              
              6,981
              
              
              9,536
              
              
              
              6,981Effect of dilutive securities
              
              478
              
              
              353
              
              
              -
              
              
              
              611Weighted average shares of common stock
      outstanding, diluted
              
              10,601
              
              
              7,334
              
              
              9,536
              
              
              
              7,592Earnings (loss) per share of common
      stock:Basic
              $
              0.10
              
              $
              0.16
              
              $
              (0.27
              )
              
              $
              0.32Diluted
              $
              0.10
              
              $
              0.15
              
              $
              (0.27
              )
              
              $
              0.29
  The dilutive securities
above represent only those stock options, warrants and convertible debt whose
exercise prices were less than the average market price of the stock during the
respective periods and therefore were dilutive. Potentially dilutive securities
that are not included in the diluted net loss calculation because they would be
antidilutive are employee stock options of 248,706 and common stock warrants of
262,685 as of January 31, 2010. The number of shares of stock options excluded
from the above amount because their exercise prices exceeded the average market
price of the stock was 548,482 for the nine months ended January 31,
2010.
  15
     14. Segment Information
  Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to allocate resources
and in assessing performance. Our chief operating decision maker is our Chief
Executive Officer. We have evaluated our approach for making operating decisions
and assessing the performance of our business and, beginning in the first
quarter of fiscal year 2010, we have determined that we have three reportable
segments: Database and Development Products (“DDP”), Integrated Content
Archiving Solutions and Modernization & Migration Solutions. Prior to the
first quarter of fiscal year 2010, the Company maintained two reportable
segments, Database and Development Products and Modernization & Migration
Solutions. The accounting policies of the segments are the same as those
described in Note 1. We evaluate performance based on gross margins (total
revenues less costs of licenses, services and migration solutions) before
operating costs. We do not manage our operating costs on a segment basis as many
of our sales, marketing and support personnel regularly work with products from
all segments. Additionally, we do not track assets by segment and therefore
asset disclosures by segment are not relevant and are not
presented.
  For the third quarter of
fiscal 2010 and 2009, total revenue from the United States was $5.0 million and
$1.7 million, respectively. Total revenue from all other countries was $3.6
million in the third quarter of fiscal 2010 and $3.5 million for the third
quarter of fiscal 2009. Total long-lived assets as of January 31, 2010 and April
30, 2009, for the United States, was $24.5 million and $9.6 million,
respectively. Total long-lived assets in all other countries were $2.1 million
as of January 31, 2010 and $68,000 as of April 30, 2009.
  Financial information
for the Company’s reportable segments is summarized below (in thousands). Fiscal
2009 segment information has been reclassified to conform to the fiscal 2010
presentation.
  Three Months Ended
              
              Nine Months EndedJanuary 31,
              
              January 31,2010
              
              2009
              
              2010
              
              2009Total Revenues:Database and Development
      Products
              $
              4,361
              
              $
              4,490
              
              $
              11,207
              
              $
              14,155Integrated Content Archiving Solutions
              
              3,221
              
              
              -
              
              
              6,038
              
              
              -Modernization and Migration
      Solutions
              
              1,040
              
              
              718
              
              
              2,975
              
              
              1,881Total Revenues
              $
              8,622
              
              $
              5,208
              
              $
              20,220
              
              $
              16,036Cost of Revenue:Database and Development
      Products
              $
              326
              
              $
              272
              
              $
              853
              
              $
              959Integrated Content Archiving Solutions
              
              834
              
              
              -
              
              
              1,588
              
              
              -Modernization and Migration
      Solutions
              
              625
              
              
              315
              
              
              1,414
              
              
              833Total Cost of Revenues
              $
              1,785
              
              $
              587
              
              $
              3,855
              
              $
              1,792Gross Profit:Database and Development
      Products
              $
              4,035
              
              $
              4,218
              
              $
              10,354
              
              $
              13,196Integrated Content Archiving Solutions
              
              2,387
              
              
              -
              
              
              4,450
              
              
              -Modernization and Migration
      Solutions
              
              415
              
              
              403
              
              
              1,561
              
              
              1,048Total Gross Profit
              $
              6,837
              
              $
              4,621
              
              $
              16,365
              
              $
              14,244
  16
     UNIFY CORPORATION
  Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
  The discussion in this Quarterly Report on
Form 10-Q contains forward-looking statements that have been made pursuant to
the provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations, estimates and
projections about the software industry and certain assumptions made by the
Company’s management. Words such as “anticipates”, “expects”, “intends”,
“plans”, “believes”, “seeks”, “estimates”, variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to predict; therefore,
actual results may differ materially from those expressed or forecasted in any
such forward-looking statements. Such risks and uncertainties include, but are
not limited to, those set forth herein under “Volatility of Stock Price and
General Risk Factors Affecting Quarterly Results” and in the Company’s Annual
Report on Form 10-K under “Business – Risk Factors.” Unless required by law, the
Company undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
However, readers should carefully review the risk factors set forth in other
reports or documents the Company files from time to time with the SEC,
particularly the Company’s Annual Report on Form 10-K, Quarterly Reports on Form
10-Q and any Current Reports on Form 8-K.
  The following discussion
should be read in conjunction with the unaudited Condensed Consolidated
Financial Statements and Notes thereto in Part I, Item 1 of this Quarterly
Report on Form 10-Q and with the audited Consolidated Financial Statements and
Notes thereto, together with Management’s Discussion and Analysis of Financial
Condition and Results of Operations, which are included in the Company’s Annual
Report on Form 10-K for the fiscal year ended April 30, 2009, as filed with the
SEC.
  Overview
  Unify (the “Company”,
“we”, “us” or “our”) is a global provider of application development, data
management, migration and archiving software solutions. Our software helps
companies to maximize value and reduce cost in the development, deployment,
management and retention of business applications, data and electronically
stored information. Our archiving solutions meet an organization’s requirement
to archive, discover and preserve electronically stored information for
eDiscovery, regulatory compliance, global email access and storage savings.
  The Company sells and
markets application development and database software and services, integrated
content archiving solutions and modernization solutions through three segments.
The segments are the Database and Development Products (“DDP”), Integrated
Content Archiving Solutions and our Modernization & Migration Solutions.
  Unify’s customers
include corporate information technology (“IT”) and legal departments, software
value-added resellers (“VARs”), solutions integrators (“SIs”) and independent
software vendors (“ISVs”) from a variety of industries, including insurance,
financial services, healthcare, government, manufacturing, retail, education,
and more. We are headquartered in Roseville, California, with offices in New
Jersey, Canada, Australia, France, Germany, and the United Kingdom (“UK”). We
market and sell products directly in the United States, Europe, Canada, Japan,
Singapore and Australia and indirectly through global distributors and resellers
representing more than 50 countries.
  Our application
modernization solutions help organizations migrate and maximize investments in
their existing applications and data. Our Modernization and Migration Solutions,
and Software products are built to increase productivity, eliminate risk and
substantially reduce time and costs. Our application development and data
management software products include Team Developer, SQLBase, SQLBase Treasury,
NXJ, DataServer, VISION and ACCELL. Our Modernization and Migration Solutions
include ComposerTM Notes which delivers a like-for-like migration of Lotus Notes
applications to the Microsoft .NET platform, Composer SabertoothTM which speeds
the conversion of Team Developer or SQLWindows applications to Microsoft .NET,
Composer CipherSoft which automatically converts Oracle Forms and PL/SQL code to
Java and Composer Mainframe which delivers automation migration of legacy COBOL,
Ideal and Natural code to modern code and relational databases through best of
breed partnerships with Ateras Inc and Information Analysis Inc. We also have an
integrated content archiving and eDiscovery software solution, the Unify Archive
Platform TM, which enables organizations to securely capture, index, archive,
retrieve, review, share, search, supervise and manage the retention,
disposition, preservation and destruction of electronic records.
  17
     Critical Accounting
Policies
  The following discussion
and analysis of the Company’s financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent liabilities. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. The areas that
require significant judgment are as follows.
  Revenue Recognition
  The Company generates
revenue from software license sales and related services, including maintenance
and support, and consulting services. Additionally, the Company generates
revenue from its migration solutions products. The Company licenses its products
to end-user customers, independent software vendors (“ISVs”), international
distributors and value-added resellers (“VARs”). The Company’s products are
generally sold with a perpetual license. The Company’s contracts with ISVs, VARs
and international distributors do not include special considerations such as
rights of return, stock rotation, price protection or special acceptance. The
Company exercises judgment in connection with the determination of the amount of
revenue to be recognized in each accounting period. The nature of each
contractual arrangement determines how revenues and related costs are
recognized.
  For software license
arrangements that do not require significant modification or customization of
the underlying software, revenue is recognized when the software product or
service has been shipped or electronically delivered, the license fees are fixed
and determinable, uncertainties regarding customer acceptance are resolved,
collectability is probable and persuasive evidence of an arrangement
exists.
  For fixed price
arrangements that require significant modification or customization of software,
the Company uses the percentage-of-completion method for revenue recognition.
Under the percentage-of-completion method, progress towards completion is
measured by labor hours.
  The Company considers a
signed non-cancelable license agreement, a customer purchase order, a customer
purchase requisition, or a sales quotation signed by an authorized purchaser of
the customer to be persuasive evidence that an arrangement exists such that
revenue can be recognized.
  The Company’s customer
contracts include multi-element arrangements that include a delivered element (a
software license) and undelivered elements (such as maintenance and support
and/or consulting). The value allocated to the undelivered elements is unbundled
from the delivered element based on vendor-specific objective evidence (VSOE) of
the fair value of the maintenance and support and/or consulting, regardless of
any separate prices stated within the contract. VSOE of fair value is defined
as: (i) the price charged when the same element is sold separately, or (ii) if
the element has not yet been sold separately, the price for the element
established by management having the relevant authority when it is probable that
the price will not change before the introduction of the element into the
marketplace. The Company then allocates the remaining balance to the delivered
element (a software license) regardless of any separate prices stated within the
contract using the residual method as the fair value of all undelivered elements
is determinable.
  We defer revenue for any
undelivered elements, and recognize revenue for delivered elements only when the
fair values of undelivered elements are known, uncertainties regarding customer
acceptance are resolved, and there are no customer-negotiated refund or return
rights affecting the revenue recognized for delivered elements. If we cannot
objectively determine the fair value of any undelivered element included in
bundled software and service arrangements, we defer revenue until all elements
are delivered and services have been performed, or until fair value can
objectively be determined for any remaining undelivered elements.
  An assessment of the
ability of the Company’s customers to pay is another consideration that affects
revenue recognition. In some cases, the Company sells to undercapitalized
customers. In those circumstances, revenue recognition is deferred until cash is
received, the customer has established a history of making timely payments or
the customer’s financial condition has improved. Furthermore, once revenue has
been recognized, the Company evaluates the related accounts receivable balance
at each period end for amounts that we believe may no longer be collectible.
This evaluation is largely done based on a review of the financial condition via
credit agencies and historical experience with the customer. Any deterioration
in credit worthiness of a customer may impact the Company’s evaluation of
accounts receivable in any given period.
  18
     Revenue from support and
maintenance activities, which consist of fees for ongoing support and
unspecified product updates, are recognized ratably over the term of the
maintenance contract, typically one year, and the associated costs are expensed
as incurred. Consulting service arrangements are performed on a “best efforts”
basis and may be billed under time-and-materials or fixed price arrangements.
Revenues and expenses relating to providing consulting services are generally
recognized as the services are performed.
  Deferred Tax Asset Valuation
Allowance
  As of April 30, 2009, we
had approximately $17.1 million of deferred tax assets related principally to
net operating loss carryforwards, reserves and other accruals, and foreign tax
credits. The Company’s ability to utilize net operating loss carryforwards may
be subject to certain limitations in the event of a change in ownership. A
valuation allowance has been recorded to offset these deferred tax assets. The
ability of the Company to ultimately realize its deferred tax assets will be
contingent upon the Company achieving taxable income. There is no assurance that
this will occur in amounts sufficient to utilize the deferred tax assets. Should
we determine that we would be able to realize the deferred tax assets in the
future in excess of the recorded amount, an adjustment to the deferred tax asset
would increase income in the period such determination was made.
  Account Receivable and Allowance for Doubtful
Accounts
  We record trade accounts
receivable at the invoiced amount and they do not bear interest. We maintain an
allowance for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. We make these estimates
based on an analysis of accounts receivable using available information on our
customers’ financial status and payment histories as well as the age of the
account receivable. Historically, bad debt losses have not differed materially
from our estimates.
  19
     Results of Operations
  The following table sets
forth, for the periods indicated, certain financial data as a percentage of
total revenue:
  Three Months Ended
              
              
              Nine Months EndedJanuary 31,
              
              
              January 31,2010
              
              
              2009
              
              
              2010
              
              
              2009Revenues:Software licenses
              38.9
              
              %
              
              33.3
              
              %
              
              30.5
              
              %
              
              33.0
              
              %Services
              49.0
              
              %
              
              52.9
              
              %
              
              54.8
              
              %
              
              55.3
              
              %Migration solutions
              12.1
              
              %
              
              13.8
              
              %
              
              14.7
              
              %
              
              11.7
              
              %Total revenues
              100.0
              
              %
              
              100.0
              
              %
              
              100.0
              
              %
              
              100.0
              
              %Cost of Revenues:Software licenses
              1.6
              
              %
              
              0.6
              
              %
              
              1.1
              
              %
              
              1.1
              
              %Services
              11.8
              
              %
              
              4.6
              
              %
              
              10.9
              
              %
              
              4.9
              
              %Migration solutions
              7.2
              
              %
              
              6.0
              
              %
              
              7.0
              
              %
              
              5.2
              
              %Total cost of revenues
              20.6
              
              %
              
              11.2
              
              %
              
              19.0
              
              %
              
              11.2
              
              %Gross profit
              79.4
              
              %
              
              88.8
              
              %
              
              81.0
              
              %
              
              88.8
              
              %Operating Expenses:Product development
              20.3
              
              %
              
              12.1
              
              %
              
              24.2
              
              %
              
              12.9
              
              %Selling, general and administrative
              45.0
              
              %
              
              52.1
              
              %
              
              68.4
              
              %
              
              58.8
              
              %Total operating expenses
              65.3
              
              %
              
              64.2
              
              %
              
              92.6
              
              %
              
              71.7
              
              %Income (loss) from operations
              14.1
              
              %
              
              24.6
              
              %
              
              (11.6
              )
              %
              
              17.1
              
              %Other income (expense), net
              (1.1
              )
              %
              
              (0.8
              )
              %
              
              (0.4
              )
              %
              
              (1.3
              )
              %Income (loss) before income taxes
              13.0
              
              %
              
              23.8
              
              %
              
              (12.0
              )
              %
              
              15.8
              
              %Provision for income taxes
              0.7
              
              %
              
              2.9
              
              %
              
              0.6
              
              %
              
              2.1
              
              %Net
      income (loss)
              12.3
              
              %
              
              20.9
              
              %
              
              (12.6
              )
              %
              
              13.7
              
              %
  Total Revenues
  The Company generates
revenue from software license sales and related services, including maintenance
and support, and consulting services. We license our software through our direct
sales force in the United States, Asia Pacific, Europe and through indirect
channels comprised of distributors, ISVs, VARs, and other partners worldwide.
  Total revenues in the
third quarter of fiscal 2010 were $8.6 million, an increase of $3.4 million from
the third quarter of fiscal 2009. This represents an increase of 65% from the
third quarter of fiscal 2009 revenues of $5.2 million. Total revenues for the
nine months ended fiscal 2010 were $20.2 million, an increase of $4.2 million.
This represents an increase of 26% over the nine month period of fiscal 2009
revenues of $16.0 million. While the Company continued to feel the impact of the
world-wide slowdown in the economic environment in the third quarter of 2010
there was a noticeable increase in sales activity in most parts of the world
compared to the first and second quarters of 2010. While total revenue in the
third quarter was up compared to the first and second quarters, the Company is
still not experiencing as large a number of high dollar value orders being
placed as it has in prior years. Late in the second quarter of 2010 the Company
released a new version of its Team Developer product and as a result we saw an
increase in Team Developer sales in the third quarter. Total software license
revenues in the third quarter of fiscal 2010 were $3.4 million, an increase of
$1.7 million from the third quarter of fiscal 2009. This represents an increase
of 93% over the third quarter of fiscal 2009 revenues of $1.7 million. Total
software license revenues for the nine months ended fiscal 2010 were $6.1
million, an increase of $0.8 million. This represents an increase of 15% over
the nine month period of fiscal 2009 revenues of $5.3 million. Total services
revenues in the third quarter of fiscal 2010 and 2009 were $4.2 million and $2.8
million, respectively. Total services revenues for the nine months ended fiscal
2010 were $11.1 million, an increase of $2.3 million. This represents an
increase of 26% over the nine month period of fiscal 2009 revenues of $8.8
million. The increase in services revenue primarily related to the services
revenue generated by AXS-One. Total migration solutions revenue in the third
quarter of fiscal 2010 was $1.0 million compared to $0.7 million for the third
quarter of fiscal 2009. Total migration solutions revenue for the nine months
ended fiscal 2010 were $3.0 million, an increase of $1.1 million. This
represents an increase of 58% over the nine month period of fiscal 2009 revenues
of $1.9 million. The increase in migration solutions revenue was primarily
related to a multi-million dollar database migration project for a governmental
entity.
  20
     For the third quarter of
fiscal 2010 and 2009, total revenues from the United States were 58% and 33% of
total revenues, respectively. Total revenue from the United States in absolute
dollars was $5.0 million for the third quarter of fiscal 2010 and $1.7 million
for the third quarter of fiscal 2009. The increase is primarily due to the
recognition of revenue on two large US based projects. Additionally, AXS-One has
historically had a high percentage of total revenue from the United States.
Total revenue from all other countries was $3.6 million in the third quarter of
fiscal 2010 and $3.5 million for the third quarter of fiscal 2009. On a
percentage basis, revenue from other countries was 42% for the third quarter of
fiscal 2010 and 67% for fiscal 2009.
  Cost of Revenues
  Cost of Software Licenses. Cost of software licenses consists primarily
of royalty payments and the amortization of purchased technology from third
parties that is amortized ratably over the technology’s expected useful life.
Cost of software licenses was $140,000 and $33,000 for the third quarter of
fiscal 2010 and fiscal 2009, respectively. The increase in cost of software
licenses represents an increase in software royalty payments. For the first nine
months ended January 31, 2010 and 2009, cost of software licenses was $229,000
and $172,000, respectively.
  Cost of Services. Cost of services consists primarily of
employee, facilities and travel costs incurred in providing customer support
under software maintenance contracts and third party consulting services. Cost
of services was $1,020,000 and $239,000 for the third quarter of fiscal 2010 and
fiscal 2009, respectively. For the nine months ended January 31, 2010 and 2009,
cost of services was $2,212,000 and $787,000, respectively. The increase in cost
of services for both the three months and nine months ended January 31, 2010 was
due primarily to the addition of AXS-One employees.
  Cost of Migration Solutions. Cost of migration
solutions consists primarily of both expenses associated with employees involved
in migration projects and also expenses related to third party assistance. Cost
of migration solutions was $625,000 and $315,000 for the third quarter of fiscal
2010 and fiscal 2009, respectively. For the nine months ended January 31, 2010
and 2009, cost of migration solutions was $1,414,000 and $833,000, respectively.
The increase in cost of migration solutions for both the three and nine months
ended January 31, 2010 was primarily due to a large database migration project
in the current year.
  Operating Expenses
  Product Development. Product development expenses consist primarily
of employee and facilities costs incurred in the development and testing of new
products and in the porting of new and existing products to additional hardware
platforms and operating systems. Product development costs in the third quarter
of fiscal 2010 were $1.7 million compared to $0.6 million in the same period of
fiscal 2009. For the nine months ended January 31, 2010 and 2009, product
development expenses were $4.9 million and $2.1 million, respectively. The
increase in product development expenses in fiscal 2010 was primarily the result
of expenses related to our acquisition of CipherSoft in January 2009 and our
acquisition of AXS-One in June 2009.
  Selling, General and Administrative. Selling, general and
administrative (“SG&A”) expenses consist primarily of salaries and benefits,
marketing programs, travel expenses, professional services, facilities expenses
and bad debt expense. SG&A expenses were $3.9 million in the third quarter
of fiscal 2010 and $2.7 million for the third quarter of fiscal 2009. The major
components of SG&A for the third quarter of fiscal 2010 were sales expenses
of $1.8 million, marketing expenses of $0.4 million and general and
administrative expenses of $1.7 million. For the third quarter of fiscal 2009,
the major components of SG&A were sales expenses of $1.3 million, marketing
expenses of $0.2 million and general and administrative expenses of $1.2
million. In the nine months ended January 31, 2010 and 2009, our SG&A
expenses were $13.8 million and $9.4 million, respectively. The major components
of SG&A for the nine month period ended January 31, 2010 were sales expenses
of $6.7 million, marketing expenses of $1.0 million and general and
administrative expenses of $6.1 million. The major components of SG&A for
the nine month period ended January 31, 2009 were sales expenses of $4.6
million, marketing expenses of $0.7 million and general and administrative
expenses of $4.1 million. The increase in SG&A expenses in fiscal 2010 was
primarily the result of expenses incurred related to our acquisition of
CipherSoft in January 2009 and our acquisition of AXS-One in June
2009.
  Other Income (Expense),
Net. Other income
(expense), net consists primarily of interest expense, foreign exchange gains
and losses and other income. Interest expense for the third quarter of fiscal
2010 and 2009 was $71,000 and $48,000, respectively. For the nine months ended
January 31, 2010 and 2009, interest expense was $195,000 and $135,000,
respectively. Interest expense consists primarily of interest incurred on notes
payable resulting from a debt financing in conjunction with the November 2006
acquisition of Gupta Technologies LLC and the acquisition of CipherSoft Inc.,
plus the amortization of related debt issuance costs and the amortization of the
discount on notes payable. Foreign exchange rate losses for the third quarter of
fiscal 2010 were $22,000. Foreign exchange rate losses in the third quarter of
fiscal 2009 were $21,000. Foreign exchange rate gains for the nine months ended
January 31, 2010 were $42,000. Foreign exchange rate losses for the nine months
ended January 31, 2009 were $132,000. Other income for the third quarter of
fiscal 2010 and 2009 was $0 for both periods. Other income for the nine months
ended January 31, 2010 was $61,000. Other income for the nine months ended
January 31, 2009 was $19,000.
  21
     Provision for Income Taxes. For the third quarter of
fiscal 2010, the Company recorded $56,000 in federal and state income tax
expenses. For the third quarter of fiscal 2009, the Company recorded $153,000 in
federal and state income tax expenses. For the nine months ended January 31,
2010 the Company recorded $122,000 in federal and state income tax expenses. For
the nine months ended January 31, 2009, the Company recorded $341,000 in federal
and state income tax expenses.
  Liquidity and Capital Resources
  At January 31, 2010, the
Company had cash and cash equivalents of $2.3 million, compared to $6.1 million
at April 30, 2009. The decrease in cash from April 30, 2009 to January 31, 2010
was primarily the result of payments on obligations related to the June 30, 2009
acquisition of AXS-One. The Company had net accounts receivable of $8.4 million
as of January 31, 2010, and $4.5 million as of April 30, 2009.
  As of January 31, 2010
the Company has various notes payable outstanding in the amount of $1.8 million
of which $1.5 million is current. The notes payable all have an interest rate of
5%. The Company also has a $2.5 million revolving line of credit with an
interest rate of prime plus 2.25% which has a maturity date of November 30,
2010. As of January 31, 2010 there is $350,000 outstanding on the revolving line
of credit.
  We believe the existing
cash balance of $2.3 million as of January 31, 2010, along with forecasted
operating cash flows and the revolver credit facility, will provide us with
sufficient working capital for us to meet our operating needs for the next 12
months. Our operating plan assumes normal operations for the Company and the
required debt service payments.
  Operating Cash Flow . For the first nine months of fiscal year
2010 cash used by operations was $3.2 million. This compares to cash flows
provided by operations of $2.0 million for the first nine months of fiscal 2009.
Cash flows used by operations for the first nine months of fiscal 2010
principally resulted from a net loss of $2.6 million, an increase in accounts
receivable of $3.5 million, an increase in prepaid expenses and other current
assets of $0.1 million, a decrease in accounts payable of $1.3 million, a
decrease in other accrued liabilities of $2.2 million, and a decrease in other
long term liabilities of $0.2 million. Offsetting these amounts was an increase
in deferred revenue of $4.2 million, amortization of intangible assets of $1.9
million, depreciation of $0.2 million and stock based compensation expense of
$0.5 million.
  For the first nine
months of fiscal year 2009 cash provided by operations was $2.0 million. Cash
flows provided by operations for the first nine months of fiscal 2009
principally resulted from $2.2 million in net income, depreciation of $0.1
million, amortization of intangible assets of $0.5 million, stock based
compensation expense of $0.4 million, an increase of $0.2 million in other
accrued liabilities. Offsetting these amounts was an increase of $0.1 million in
accounts receivable, an increase of $0.1 million of prepaid expenses and other
current assets, a decrease of $0.2 million in accounts payable, a decrease of
$0.5 million of accrued compensation and related expenses and a decrease of $0.6
million in deferred revenue.
  Investing Cash Flows . Cash flow from investing activities was
$3,000 for the first nine months of fiscal 2010 and was primarily the result of
cash gained in the acquisition of AXS-One. Net cash used in investing activities
for the first nine months of fiscal 2009 was $766,000 and was the result of the
purchase of property and equipment of $165,000, payments on acquisitions of
$491,000 and payments on acquisition obligations of $110,000.
  Financing Cash Flows. Net cash used in financing activities for the
first nine months of fiscal 2010 was $816,000. Cash from financing activities
was the result of borrowings on the revolving line of credit of $350,000.
Offsetting this amount was $1,175,000 of principal payments on debt obligations.
Net cash used in financing activities for the first nine months of fiscal 2009
was $21,000.
  22
     A summary of certain
contractual obligations as January 31, 2010 is as follows (in thousands):
  Payments Due by
  Period1 year
              
              2-3
              
              4-5
              
              After 5Contractual Obligations
              
              Total
              
              or less
              
              years
              
              years
              
              yearsNotes payable
              
              $
              2,045
              
              $
              1,811
              
              $
              234
              
              
              —
              
              
              —Estimated interest expense
              
              
              33
              
              
              32
              
              
              1
              
              
              —
              
              
              —Other liabilities
              
              
              404
              
              
              317
              
              
              —
              
              
              87
              
              
              —Capital leases
              
              
              65
              
              
              43
              
              
              22
              
              
              —
              
              
              —Operating leases
              
              
              4,748
              
              
              1,428
              
              
              2,597
              
              
              723
              
              
              —Total contractual cash obligations
              
              $
              7,295
              
              $
              3,631
              
              $
              2,854
              
              $
              810
              
              $
              —
  Other liabilities
primarily include contractual severance payments related to the AXS-One
acquisition.
  Volatility of Stock Price and General Risk
Factors Affecting Quarterly Results
  Unify’s common stock
price has been and is likely to continue to be subject to significant
volatility. A variety of factors could cause the price of the common stock to
fluctuate, perhaps substantially, including: announcements of developments
related to our business; fluctuations in the operating results and order levels
of Unify or its competitors; general conditions in the computer industry or the
worldwide economy; announcements of technological innovations; new products or
product enhancements from us or our competitors; changes in financial estimates
by securities analysts; developments in patent, copyright or other intellectual
property rights; developments in our relationships with our customers,
distributors and suppliers; legal proceedings brought against the Company or its
officers; significant changes in our senior management team; and our proposed
stock repurchase program. In addition, in recent years the stock market in
general, and the market for shares of equity securities of many high technology
companies in particular, have experienced extreme price fluctuations which have
often been unrelated to the operating performance of those companies. Such
fluctuations may adversely affect the market price of our common
stock.
  Unify’s stock began
trading on the NASDAQ under the symbol UNFY on August 25, 2008. Previously the
Company’s shares traded over-the-counter on the “bulletin board.” Even though
the Company has moved to a larger exchange with the NASDAQ, we do not receive
any analyst coverage, the Company’s shares are still thinly traded and our stock
is considered to be a micro-cap stock. Our stock is therefore subject to greater
price volatility than larger companies whose stock trades more actively.
  Unify’s quarterly
operating results have varied significantly in the past and we expect that they
could vary significantly in the future. Such variations could result from the
following factors: the size and timing of significant orders and their
fulfillment; demand for our products; the quantity, timing and significance of
our product enhancements and new product announcements or those of our
competitors; our ability to integrate acquisitions; our ability to attract,
integrate and retain key employees; seasonality; changes in our pricing or our
competitors’; realignments of our organizational structure; changes in the level
of our operating expenses; incurrence of extraordinary operating expenses,
changes in our sales incentive plans; budgeting cycles of our customers;
customer order deferrals in anticipation of enhancements or new products offered
by us or our competitors; product life cycles; product defects and other product
quality problems; currency fluctuations; and general domestic and international
economic and political conditions.
  Due to the foregoing
factors, quarterly revenues and operating results may vary on a quarterly basis.
Revenues and quarterly results may vary because software technology is rapidly
evolving, and our sales cycle, from initial evaluation to purchase and the
providing of maintenance services, can be lengthy and varies substantially from
customer to customer. Because we normally deliver products within a short time
of receiving an order, we typically do not have a backlog of orders. As a
result, to achieve our quarterly revenue objectives, we are dependent upon
obtaining orders in any given quarter for shipment in that quarter. Furthermore,
because many customers place orders toward the end of a fiscal quarter, we
generally recognize a substantial portion of our software license revenues at
the end of a quarter. Our expense levels largely reflect our expectations for
future revenue and are therefore somewhat fixed in the short term. We expect
that our operating results will continue to be affected by the continually
challenging IT economic environment as well as by seasonal trends.
  23
     Item 3. Quantitative and Qualitative
Disclosures about Market Risk
  Interest Rate Risk . The Company’s exposure to market rate risk
for changes in interest rates relates primarily to its investment portfolio,
which consists of cash equivalents. Cash equivalents are highly liquid
investments with original maturities of three months or less and are stated at
cost. Cash equivalents are generally maintained in money market accounts which
have as their objective preservation of principal. The Company does not believe
its exposure to interest rate risk is material for cash and cash equivalents,
which totaled $2.3 million as of January 31, 2010. Unify had no short-term
investments at January 31, 2010.
  In November 2006, the
Company entered into a revolving credit facility agreement with ComVest whereby
ComVest would provide up to $2.5 million through a revolving credit facility.
The revolver has an interest rate of prime plus 2.25% and has a maturity date of
November 30, 2010. Should the prime interest rate increase during the life of
the revolver, the Company would have exposure to interest rate risk if it has a
large balance outstanding on the revolver. As of January 31, 2010, there was
$350,000 outstanding on the revolver.
  Unify does not use
derivative financial instruments in its short-term investment portfolio, and
places its investments with high quality issuers only and, by policy, limits the
amount of credit exposure to any one issuer. The Company is averse to principal
loss and attempts to ensure the safety of its invested funds by limiting
default, market and reinvestment risk.
  Foreign Currency Exchange Rate
Risk . As a global concern,
the Company faces exposure to adverse movements in foreign currency exchange
rates. These exposures may change over time as business practices evolve and
could have an adverse impact on the Company’s business, operating results and
financial position. Historically, the Company’s primary exposures have related
to local currency denominated sales and expenses in Europe, Japan and Australia.
For example, when the U.S. dollar strengthens against the major European
currencies, it results in lower revenues and expenses recorded for those regions
when translated into U.S. dollars.
  Due to the substantial
volatility of currency exchange rates, among other factors, the Company cannot
predict the effect of exchange rate fluctuations on its future operating
results. Although Unify takes into account changes in exchange rates over time
in its pricing strategy, it does so only on an annual basis, resulting in
substantial pricing exposure as a result of foreign exchange volatility during
the period between annual pricing reviews. The Company also has currency
exchange rate exposures on cash and accounts receivable balances related to
activities with the Company’s operations in France, Germany, UK, Australia and
Canada. At January 31, 2010 the Company had cash held in foreign currencies of
$1,023,000 in Euros, $133,000 in Canadian dollars, $293,000 in pounds sterling,
and $4,000 in Australian dollars. At January 31, 2010 the Company had accounts
receivable in foreign currencies of $2,649,000 in Euros, $106,000 in Canadian
dollars, $749,000 in pounds sterling, $140,000 in Australian dollars, $19,000 in
Japanese yen, $4,000 in Polish zloty, and $24,000 in Malaysian ringgit. The
Company engages in no hedging activities to reduce the risk of such
fluctuations. A hypothetical ten percent change in foreign currency rates could
have a significant impact on the Company’s business, operating results and
financial position. The Company has not experienced material exchange losses in
the past; however, due to the substantial volatility of currency exchange rates,
among other factors, it cannot predict the effect of exchange rate fluctuations
on its future business, operating results and financial position.
  Item 4. Controls and Procedures
  (a) Evaluation of Disclosure Controls and Procedures . Under the supervision and with the
participation of our management, including our chief executive officer and chief
financial officer, we evaluated the effectiveness of our disclosure controls and
procedures, as such term is defined under Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended. Based upon that evaluation, our
chief executive officer and chief financial officer concluded that our
disclosure controls were effective as of the end of the period covered by this
quarterly report.
  (b) Changes in Internal Controls . There have been no changes in our internal
controls over financial reporting that occurred during the first nine months of
fiscal year 2010 that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
  24
     UNIFY CORPORATION
  PART II. OTHER INFORMATION
  Item 1. Legal Proceedings
  Litigation
  The Company is subject
to legal proceedings and claims arising in the ordinary course of business. If
such matters arise, the Company cannot assure that it would prevail in such
matters, nor can it assure that any remedy could be reached on mutually
agreeable terms, if at all. Due to the inherent uncertainties of litigation,
were there any such matters, the Company would not be able to accurately predict
their ultimate outcome. As of January 31, 2010, there were no current
proceedings or litigation involving the Company that management believes would
have a material adverse impact on its financial position, results of operations,
or cash flows.
  25
     Item 6. Exhibits
  Exhibits31.1
              
              Certification of Chief Executive Officer
      under Section 302 of the Sarbanes-Oxley Act of 2002.31.2
              
              Certification of Chief Financial Officer
      under Section 302 of the Sarbanes-Oxley Act of 2002.32.1
              
              Certification of Chief Executive Officer
      under 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
              
              Certification of Chief Financial Officer
      under 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.
  26
     UNIFY CORPORATION SIGNATURE
  Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
  Date: March 5, 2010
              Unify Corporation(Registrant)By:/s/ STEVEN D.
      BONHAMSteven D. BonhamChief Financial Officer(Principal Financial and Accounting
Officer)
  27